Loans from private companies could increase costs of college education: FL-PIRG listen11/01/13 Seán Kinane
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As the cost of college and university tuition goes up, so does the amount of debt students are left with when they graduate. But a new analysis of consumer complaints points toward another factor that could drive up the cost of education.
WMNF interviewed Dalyn Houser, a program associate with the Florida Public Interest Research Group, says costs often go up when students choose private lenders rather than government-backed loans.
"Private loan firms are misleading students in and have been since 2007 when they actually offered colleges a financial kickback. They offered them money to basically push their policies onto students. The problem is that a lot of students are misled and sign on to private student loans which have extremely high interest rates and dubious terms. Instead of getting federal aid which in most cases they are often eligible for and they're not told about his upfront. So a lot of students have a lot of debt for no reason and it's really just not fair."
The Public Interest Research Group has come up with a report that looks at a government database of complaints. Tell us about that database and what PIRG has done to analyze the database.
"Sure. The Consumer Financial Protection Bureau, they made a consumer complaint database where people can go online and essentially look through complaints that everybody has made and see what the outcomes were and things of that nature. It's really to put an eye on these financial institutions and kind of act as a watchdog and also to educate people about financial issues. We have released a report on credit cards, mortgages and now this one is on student loans. We basically took this information and analyzed state by state what the worst private student loan vendors were."
And in Florida, what did you find out?
"Florida we found, actually in 48 states Sallie Mae is the largest student loan vendor, private student loan vendor and the majority of the complaints, actually they own 50% of the private student loan marketplace so it's behemoth and it's really hard to other private student loan vendors because it's such a large company but besides that in Florida we found that this loan vendor called ASPHEAA Pennsylvania Higher Education Assistance Authority is the second most complained about vendor and they're actually a company that has purchased several student loan portfolios and they act as servicer for other private student loan vendors, so they're second and behind them is Wells Fargo."
They types of complaints that people are entering into this government database are what kinds of complaints?
"So the three complaints that were entered into the student loan database were; inability to pay, so things like deferment or forbearance, then loan payments in the end and also just signing up for a loan in general. Those were the three categories."
There are alternatives to private lenders like government backed student loans, why would someone take out a private loan instead of a government loan and what are the types of government loans that are available?
"Generally, and this is really good, but since working on this report and talking with a lot of different institutions I've seen that colleges now are warning students about these things and saying 'you guys should go look for federal aid first instead of private student loans'. And I was really surprised by that because in my experience, going through college, they really push private student loans on you. The alternatives are going to federal aid. 54% of students sign on to student loans when they're eligible for federal aid of some sort. Federal aid payments are way lower, the interest rates are way lower. Oftentimes they have loan forgiveness or deferrment things, options like that that private student loan companies do not offer. We found in the database that a lot of students that complained, we found around 4,300 complaints about student loans from students and in Florida there were 255 specifically from students and they were all pretty angry students that had been misled and things such as being told that they're payment had been moved forward without being consulted about it so it's a real issue. Generally I think the main message is that the Consumer Financial Protection Bureau is here to educate people and make it easier for people to see these sorts of financial problems that institutions are pushing on people. We want to make it more effective so we think that it should be reorganized so that it is easily accessible, we want to reach out to as many people as possible so that more people know about it. In the South not as many people filed complaints about it and actually in the Northeast it was the main region that filed the most complaints about student loans so we definitely want to make sure that people know about it and use it because it's meant to keep an eye on these financial institutions from taking advantage of people."